The insurance landscape in New Zealand is undergoing a significant shift towards risk-based pricing for residential dwelling insurance, with premiums increasingly reflecting specific property risks such as seismic activity and flood susceptibility. This transition was highlighted by Kerry Watt, Director of Financial Stability Assessment and Strategy at the Reserve Bank of New Zealand.
In an article slated for release in the May 2024 Financial Stability Report, Watt emphasized that certain regions, like Wellington with its seismic risks, are already experiencing this shift towards tailored pricing based on specific risks.
Watt acknowledged the challenges posed by this trend, noting that owners of properties deemed higher-risk may face affordability issues as insurance premiums rise. He mentioned the potential for insurance availability to decrease in some cases, though complete withdrawal of insurance remains uncommon even for properties in high-risk areas.
The move towards risk-based pricing is seen as a logical response by insurers to a changing environment impacted by factors such as climate change. Watt emphasized that this approach can incentivize proactive risk mitigation efforts and ultimately benefit overall societal risk management.
To address the potential affordability challenges arising from this shift, Watt emphasized the need for collaboration among insurers, government entities, home buyers, and lenders. Understanding natural hazards and taking proactive steps to manage risks are crucial for ensuring the long-term affordability and sustainability of dwelling insurance in New Zealand.
